Equities
Wall Street futures were little changed early Thursday while world stocks put in their best January showing on record after the Federal Reserve suggested a patient approach to future rate increases. Overseas, European markets were positive after a mixed start following a report showing German retail sales posted their biggest monthly decline in more than a decade. In Asia, the Fed rally helped underpin shares in China and Japan, although a weak reading on Chinese factory activity weighed on sentiment. On Bay Street, futures were firmer with gold prices higher while oil held steady.
MSCI’s all-country index, which follows stocks in 47 countries, rose 0.5 per cent. For the month, the index is up more than 7 per cent, the biggest January gain since the index launched in 1988 and the best monthly showing since December 2015, according to Reuters. On Wednesday, the Fed held interest rates steady, as expected, but also indicated a pause in its current rate-hike campaign by dropping the promise of gradual future increases. The message helped push the down back above 25,000 and led to a 1.5-per-cent gain on the S&P.
“Across the end of last year, the markets had grown increasingly nervous that the Fed was on the cusp of a big policy error by remaining on its hiking path despite growing signs of weakness in the global economy,” Jasper Lawler, head of research for London Capital Group, said. “As a result, stocks dropped heavily fearing that higher borrowing costs would damage the economy at a time when global growth was also slowing.”
Heading into Thursday’s session, earnings and economics will be at the forefront.
On Bay Street, investors got a reading on the state of Canada’s economy. Statistics Canada said GDP fell by 0.1 per cent in November, partly offsetting October’s 0.3 per cent increase. The November decline was in line with market expectations. The report will be followed later in the day by remarks from Bank of Canada deputy governor Carolyn Wilkins, who will be speaking at the Toronto Board of Trade at 12:45 p.m. (ET).
“A key restraining factor is expected to be the Canada Post strike that shutdown various postal facilities on a rotating basis through the month,” RBC assistant chief economist Paul Ferley said of expectations for the November report. “Given past postal strike disruptions, we are assuming a [about a] 1-per-cent drop in transportation warehousing production that alone will account for about half the total headline GDP drop we expect.”
On earnings, results from online retail giant Amazon.com Inc. reports after the close of trading. Ahead of the open, earnings are due from companies including Mastercard Inc. and General Electric Co. among others. GE shares jumped 10 per cent after the company reported quarterly revenue of US$33.3-billion, topping Wall Street forecasts. GE also said it had reached a US$1.5-billion settlement in principle with the U.S. Department of Justice over an investigation into accounting practices.
In premarket action, shares of Facebook Inc. were up more than 11.35 per cent after the social media company reported record profit. After a year marred by controversy, Facebook said revenue increased 30 per cent in the fourth quarter of 2018 compared with the final three months of 2017, to US$16.91-billion. Profit rose 61 per cent to US$6.88-billion, while diluted earnings a share hit $2.38, beating analyst expectations. Facebook also said it had added one million new daily active users in Canada and the United States and four million in Europe.
Shares of Tesla Inc., meanwhile, were down nearly 5 per cent after the company missed Wall Street profit targets and announced the departure of its chief financial officer. Excluding items, Tesla earned US$1.93 per share, missing expectations of US$2.20 per share, according to IBES data from Refinitiv. However, Tesla also promised profits in every quarter this year.
Overseas, the pan-European STOXX 600 was up 0.06 per cent. Shares of Unilever PLC were down about 3 per cent in morning trading after the consumer products company posted lower than expected sales in the latest quarter. Britain’s FTSE 100 was up 0.60 per cent. Germany’s DAX added 0.06 per cent. France’s CAC 40 rose 0.24 per cent.
In Asia, Japan’s Nikkei added 1.06 per cent. The broader Topix gained 1.08 per cent with shares of Softbank Group climbing nearly 5 per cent. Hong Kong’s Hang Seng rose 1.08 per cent. The Shanghai Composite Index gained 0.35 per cent.
Commodities
Oil prices were steady early on helped by a smaller-than-forecast increase in U.S. crude inventories and the expected impact of U.S. sanctions on Venezuelan output. West Texas Intermediate had a day range of US$53.92 to US$54.69. The range on Brent crude is US$61.57 to US$62.28.
“The oil market pushed higher on account of the U.S. imposed sanction on Venezuela,” David Madden, market analyst with CMC Markets U.K., said. "The South American country has seen its oil production fall considerably in the past 20 years, but the prospect of tighter supply has prompted traders to snap up the relatively cheap energy."
As well, he said, a report from the U.S. Energy Information Administration showed a weekly increase in oil stockpiles of 919,000 barrels, while gasoline inventories fell more than 2.23 million barrels. Traders were expecting crude stocks to rise by 1.8 million barrels.
In other commodities, gold prices were higher and looked headed for their fourth monthly increase following Wednesday’s Fed announcement. Spot gold was up 0.2 per cent to US$1,322.26 per ounce. Prices rose to their highest since May 11 at US$1,323.34 on Wednesday. U.S. gold futures rose almost 1 per cent to US$1,322. Spot gold is up about 3.1 per cent this month. A drop in the U.S. dollar after the Fed indicated it would pause on rate hikes also helped bolster gold heading into Thursday’s session.
“The weaker dollar is once again providing a bullish case for gold, which is putting pressure on US$1,320,” OANDA analyst Craig Erlam said. "This comes only days after it broke through US$1,300 following numerous efforts to do so since the start of the year."
He said, if gold breaches US$1,320, then US$1,340 becomes the next notable level of resistance, “one that may also prove temporary if traders continue to bail on the greenback.”
Currencies and bonds
The Canadian dollar was up but off early highs after a Statscan report showed the Canadian economy contracted by 0.1 per cent in November. The loonie moved to the middle of the day range of 76.01 US cents to 76.21 US cents following the release of the report. The decline was in line with market expectations and followed an increase of 0.3 per cent in October. Oil prices and a weaker greenback have played into the loonie’s recent strength, which saw the Canadian dollar lead the pack in terms of gains against the greenback this month, according to Reuters.
“October now looks to have been an island in the storm for the Canadian economy, as November saw a return to weakness,” CIBC chief economist Avery Shenfeld said, noting the Bank of Canada, like the Fed, now looks to be on hold for the next couple quarters.
"Real GDP fell 0.1 per cent matching our forecast, but that now joins with the flat period for August-September to mark three of the last four months in which performance was lacklustre."
Overnight, the U.S. dollar index touched a three week low of 95.16.
For the loonie, the key event for the loonie will be the morning release of November’s GDP report. Mr. Cole says RBC is expecting a monthly decline of 0.1 per cent after October’s gain of 0.3 per cent. The impact of the Canada Post strike in November should detract about 0.1 percentage points from growth. Softer wholesale and manufacturing sales for the month will also likely weigh, he said. Right now, RBC is looking for fourth quarter annual growth of about 1.1 per cent “with some modest downside risk.”
In bonds, U.S. Treasury yields fell on the Fed’s cautious note. The yield on the U.S. 10-year note was lower at 2.665 per cent. The yield on the 30-year note was also lower at 3.022 per cent.
Stocks set to see action
Baker Hughes, General Electric Co’s oilfield services arm, posted an 85-per-cent rise in adjusted quarterly profit on Thursday, boosted by a surge in demand for its oilfield services. The company reported an adjusted net income of US$120-million, or 26 US cents per share, in the fourth quarter ended Dec. 31, from US$65-million, or 15 US cents per share, a year earlier.
Mastercard Inc reported a 33 per cent rise in adjusted quarterly profit, as it processed more transactions during the holiday shopping season. Adjusted net income rose to US$1.6-billion, or US$1.55 per share, in the fourth quarter ended Dec 31 from US$1.2-billion, or US$1.14 per share, a year earlier. Net revenue rose to US$3.8-billion from US$3.3-billion a year ago. Shares were up nearly 4 per cent in premarket trading.
Charter Communications Inc topped quarterly revenue estimates on Thursday, as the cable operator attracted more customers for its internet services, offsetting a drop in video subscribers. The company added 289,000 residential internet customers in the fourth quarter ended Dec. 31.
Royal Dutch Shell said to would stick to spending discipline this year after 2018 profit jumped by more than a third to $21.4-billion, their highest since 2014. The Anglo-Dutch oil company also reported a sharp rise in cash generation, in a further sign that cost savings since the 2014 oil market downturn are filtering into its operations. Its shares were up by more than 4 per cent.
Unilever PLC reported lower-than-expected fourth-quarter sales on Thursday, hurt by inflation in Argentina and flat volume growth in developed markets, in its first set of results since new Chief Executive Alan Jope took charge. The maker of Dove soap and Ben & Jerry’s ice cream said fourth-quarter underlying sales rose 2.9 per cent. Analysts, on average, were expecting 3.5 per cent, a consensus forecast supplied by the company showed.
Microsoft Corp’s Azure cloud computing platform grew at a slower pace in the December quarter compared with a year earlier. Azure, Microsoft’s flagship cloud product, had revenue growth of 76 per cent in the final quarter of 2018, down from a 98 per cent surge a year earlier. Microsoft’s total revenue climbed 12.3 per cent to US$32.47-billion. Wall Street analysts on average had expected revenue of US$32.51-billion, according to IBES data from Refinitiv. Microsoft reported its latest results after the close on Wednesday. Shares were down more than 2 per cent in premarket trading.
U.S chemicals company DowDuPont Inc forecast a surprise drop in revenue for the current quarter, hit by reduced sales in its biggest unit, sending the company’s shares down 9 per cent in pre-market trading. The company, formed by the US$130-billion merger of chemical giants Dow Chemical and DuPont in September 2017, said it expects first-quarter revenue to down in the “mid-single digits percent” without giving detailed numbers. Analysts were expecting DowDupont to report revenue of US$22.63-billion for the first quarter, 5 per cent higher than the year earlier quarter.
Intel Corp named interim Chief Executive Officer Robert Swan to the role on a permanent basis on Thursday while also naming a new interim chief financial officer. Mr. Swan, 58, had been in temporary charge of the chip maker since last June when Brian Krzanich left the top job after an investigation found he had a consensual relationship with an employee in breach of company policy.
More reading:
Thursday’s small-cap stocks to watch
Economic news
Canada’s GDP contracted by 0.1 per cent in November.
Canadian producer prices fell by 0.7 per cent in December, their second consecutive sharp month-on-month drop, thanks largely to cheaper energy and petroleum products, Statistics Canada said on Thursday. Analysts in a Reuters poll had predicted a 0.2 per cent increase in December after the 0.8 per cent drop in November. The cumulative two-month decline was the greatest since June and July 2017, when prices dropped by 1.1 per cent and 1.4 per cent respectively.
The U.S. Labor Department said weekly applications for jobless claims rose by 53,000 last week to 253,000 from a 49-year low 200,000 the week before. The four-week average, which is less volatile, rose by 5,000 to 220,250, according to The Associated Press.
With Reuters and The Canadian Press
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